Philip Lomax, Managing Director of Litica Australia, answers Litica’s most frequently asked questions on ATE Insurance and provides insights on the product, how to obtain it and its strategic benefits.
What is ATE insurance?
ATE insurance is an insurance product used to manage the financial risk of litigation. It provides a party to a dispute with cover for their own and/or adverse costs exposure in exchange for payment of a premium.
It is called ‘after the event’ insurance because the policy is taken out after the dispute arises and responds if the policyholder’s dispute concludes unsuccessfully. Insurers can also provide security instruments to meet the security for costs requests of defendants.
What cases is it available for?
ATE insurance was originally a product developed for clinical negligence and personal injury disputes in the UK. However, today it is more frequently used and more readily available for commercial litigation claims.
It is widely used in Australian class action proceedings, where it is typically taken out by litigation funders to offset their exposure to the adverse costs of the proceedings. Since the introduction of Group Costs Orders in Australia, pursuant to which law firms are liable for the adverse costs exposure and the provision of security in the class action, law firms now obtain ATE insurance to manage this risk.
ATE insurance is also available for single party commercial litigation and insolvency claims. Further, if a litigation funder, law firm, insolvency practitioner or litigant has multiple claims, some insurers (like Litica) can also provide portfolio ATE policies. Litica has provided a number of these portfolio products in Australia and overseas.
Finally, ATE insurance is also available to insure capital committed by litigation funders across a portfolio of claims – commonly referred to as a ‘capital protection wrapper’. Recently, Litica provided a EURO 270m capital protection policy to international litigation funder Omni Bridgeway.
At what stage of proceedings is ATE insurance purchased?
You can apply for ATE insurance at any stage of proceedings. However, underwriters are typically less enthusiastic about insuring a case that is close to trial, as the risk of having to pay out is much higher. Most commonly, ATE insurance is taken out when proceedings are issued.
How do I obtain ATE insurance?
Applying for ATE insurance is much like applying for litigation funding. Underwriters will typically require an advice from counsel or the law firm running the matter which covers liability and quantum, and expresses views on the prospects of the case succeeding at trial. Other available key supporting documents should be provided such as pleadings and preliminary expert evidence. Of course, underwriters may have case specific requests.
However, in the first instance, we recommend you contact Philip Lomax of Litica to have a preliminary discussion about the case. We can then let you know if your case is likely to be suitable for Litica’s ATE insurance before you formally apply for cover.
How much does it cost?
Pricing is bespoke and is based on the unique risk of each case. However, premiums in Australia for a single ATE insurance risk are typically from up 25-50% of the limit of indemnity required. Premiums overseas can differ.
Whilst it is possible to structure the premium so it is either all payable up front or fully deferred and contingent (i.e. only payable if the case wins), it is usually blended so there will be a small non refundable up front premium, followed by a deferred and contingent premium. Premiums are often staged so that the amount of the deferred and contingent premium payable depends on when the matter settles, with the premium usually increasing as the matter gets closer to trial.
Are there any tactical advantages to taking out ATE insurance
There may be certain strategic advantages to taking out ATE insurance. Disclosing the existence of ATE insurance to an opponent can send a powerful message. This is because an independent assessment of the merits of the claim has been undertaken by a third party who is satisfied that the case has good merits. Further, the claimant is protected should it need to run the matter to trial. Consent should be obtained by insurers before a litigant discloses to its opponent that it has ATE insurance.